Growth Rate For State Muni Debt Falls To 20-Year Low – Moody’s

By Michael Aneiro

Moody’s reports today that the rate of growth for outstanding debt issued by U.S. states slowed for a fourth straight year last year, with 2013 producing the slowest annual rate of debt growth in the past two decades. Moody’s expects state debt levels to continue to show only modest growth in 2014.

“The continued slowdown in the growth of net tax-supported debt primarily reflects a new conservative attitude toward debt among the states,” says Kimberly Lyons, Moody’s analyst, in the report. “Growing spending pressures coupled with inconsistent revenue growth and uncertainty over future revenue trends have forced states to take a cautious approach when considering the addition of new debt service costs to their budgets.”

The combined 2013 total net-tax support debt (NTSD) for all 50 states increased to $518 billion from $516 billion in 2012, per Moody’s. Roughly half of all states saw a decline in their NTSD, including some historically large debt issuers such as California. Total NTSD growth slowed to 0.4%, below the 1.4% rate seen in 2012 and well below the 10-year average of 6%.

Moody’s said the lower borrowing also led to a decline in the median leverage ratios for the states, with NTSD per capita declining to $1,054 from $1,074 in 2012. Additionally, NTSD as a percentage of personal income declined to 2.6% from 2.8%, and NTSD as a percentage of gross state product also fell to 2.4% from 2.5%.

Debt service costs increased by 8% in 2013, up from the 3% increase in 2012, which Moody’s attributes to a return to normal debt service schedules after years of artificially low debt service, a result of higher than normal debt refunding for savings in a low interest rate environment, says Moody’s.